So far, 2024 is shaping up to be a banner year for Simulations Plus Inc.
The Lancaster-based pharmaceutical software company announced in June it acquired Pro-ficiency Holdings Inc. in a $100 million deal, two months after reporting favorable earnings that exceeded analyst expectations.
The acquisition is the seventh in Simulations’ 28-year history. The company began providing modeling and pharmaceutical simulation services in the 1990s, when data was less centralized and predictive analytics were less, well, predictive. Today, it’s a sprawling business that injects simulation technology into the entire life cycle of a new drug – from development to manufacturing to commercialization.
“We always had a growth strategy that combines both organic growth and development of new products and growth of our existing products and services, supplemented through acquisition,” said Shawn O’Connor, chief executive of Simulations Plus.
That’s where Pro-ficiency comes in. The North Carolina-based company provides software for pharmaceutical companies undergoing clinical trials to prove the efficacy and safety of its drug. Pro-ficiency creates a simulation of the clinical trial, taking into account methodology and participant behavior, to determine how best to conduct the trial to get accurate outcomes.
“The new simulation capabilities that come to us with Pro-ficiency are used in the clinical trial training process,” O’Connor said. “But it can be used in other training areas in terms of medical training, training of physicians, in the commercialization process.”
The origins of simulation technology
Drug simulation began as an idea pulled from the aerospace engineering field. Instead of spending time and money building a new concept aircraft and attempting to fly it – a costly, drawn-out, and mortally risky endeavor – engineers would construct a digital prototype and use predictive analytics to estimate the success of the project.
“In the same sort of way, the approach here is how can you evaluate, analyze and predict the likely success of a drug in the computer before you initiate the steps of the process?” O’Connor explained. “Ultimately our objective is to reduce the time it takes to bring a drug to the market.”
Predicting success and shortening the drug development process is the bottom line in the pharmaceutical industry. Each drug on the market costs about $1 billion just to develop, and 90% of them don’t make it to market after undergoing rigorous testing and getting approved by the Food and Drug Administration. Most venture firms – save for those geared specifically toward funding biotech – steer clear of the pharmaceutical industry because it takes anywhere from 10 to 15 years to see a return on investment, according to the Department of Health and Human Services.
Expanding platform companies
The risky nature of drug development created a cluster of startups and tech platforms that attempt to mitigate risk in drug development without actually having to financially participate in that risk. Companies like Simulations Plus provide a suite of software tools to help scientists in the lab find new optimal drug targets and manufacture them efficiently. These are the safer investments in the biotech sphere, per McKinsey.
But new software entrants, eager to have the best of both worlds, are now making their way into the drug development industry.
Take Terray Therapeutics, a Monrovia-based AI drug discovery company created in 2018. The platform picks a target in the body and see if potential drug molecules are able to “swim” to it once ingested into the body. The software looks for unwitting toxicity or problems the drug molecule may have in reaching the intended target.
Terray Therapeutics is working on its own drug development. But in the meantime, it has inked deals with pharmaceutical giant Bristol Myers Squibb to help it advance its own pipeline of drugs. This way, Terray Therapeutics makes money off its platform while creating its own suite of treatments.
“This agreement combines the scale, precision, and speed of our platform with the breadth and expertise of our collaborators at Bristol Myers Squibb to find new small molecule therapeutics,” Terray Therapeutics Chief Executive Jacob Berlin said in a statement.
Other companies in this space include 1200 Pharma, a Culver City-based platform aimed at helping develop cancer treatments at a faster rate.
Startups like 1200 Pharma and Terray Therapeutics have an advantage over most biotech startups developing single molecules. They work in the infancy stages of drug discovery and have become increasingly popular with biotech venture firms because they generate real revenue from providing larger companies proprietary software. This de-risks those startups and gives them the option to develop into small- to mid-size pharma companies instead of selling their assets to big pharmaceutical players.
The future of Simulations Plus
Simulations Plus announced favorable second quarter earnings in April. The company’s total revenue increased 16% from the year prior, netting the company $18.3 million, mostly in software sales. The next day, the FDA announced it renewed its license with DILIsym, a Simulations Plus-owned platform that predicts drug-induced liver injuries.
Simulations’ stock soared by 27% that day, closing out at $41.71 and remaining relatively stable. Ahead of the company’s Q3 earnings in early July, analysts at Craig-Hallum Capital Group boosted its price target from $51 too $56, while Oppenheimer Holdings Inc. upped its price target from $55 to $65.
The company has cemented itself in the life science space with partnerships with big players like Labcorp and Thermo Fisher Scientific (which owns One Lambda in West Hills), as well as collaborations with the FDA and National Institute of Health.
But O’Connor says Simulations Plus will have to continue to build out its product line and seek acquisitions as drug development becomes more advanced and requires specific simulation software for new uses.
“This world of drug development is ever evolving. And the decisions along the way – every drug regimen, dosing regimen, patient population – we continue to find new ways to use modeling and simulation to predict and influence decisions,” O’Connor said. “It’s a very rapidly expanding area of use cases.”
